Hitachi to Soften Up SANs

Hitachi Ltd. (NYSE: HIT; Paris: PHA) says sales of SAN and NAS storage solutions fell 7 percent last quarter, but the company is counting on more software to bring that number up.

Overall, Hitachi's Information and Telecommunications Systems division, of which SAN/NAS Solutions are part, showed the highest sales growth -- 26 percent -- of any of the parent company's divisions for the quarter ended December 31, 2003. At 514.5 billion (about US$4.8 billion), the division accounted for about 25 percent of Hitachi's overall quarterly revenue of ¥2,047 billion ($19 billion). The sales increase helped Hitachi show a 7 percent corporate-wide increase in revenues year-on-year (see Hitachi Posts Q3 Results).

Not bad, surely. But most of the division's progress was made in sales of disk array subsystems, hard drives, and other standalone storage items. When it comes to selling SAN or NAS solutions in bundled contracts that include hardware, software, and services, Hitachi's sales for the quarter were down 7 percent year on year: ¥65 billion ($616 million), down from ¥70 billion ($664 million) for the same quarter in 2002.

For the nine months ended December 31, Hitachi SAN/NAS solution sales were down 3 percent, from ¥200 billion ($1.9 billion) to ¥193 billion ($1.8 billion).

A spokesman for Hitachi, Matt Takahashi, says the declines were due to a range of factors, including soft sales of SANs in Japan, quirks of the international currency exchange, and price declines per 1 TByte increments of storage.Despite the argument about the slow market for storage networks in Japan, Hitachi sold 80 percent of its SAN/NAS solutions outside that country last quarter. Of that 80 percent, about 50 percent of revenues came from the U.S., 40 percent from Europe, and 10 percent from other parts of the Asia/Pacific region.

Certainly, Hitachi's facing more competition than ever worldwide, and archrival EMC Corp. (NYSE: EMC) is being more geographically aggressive than ever.

Hitachi remains bullish on its ability to sell packaged storage networking, however. Indeed, the company projects a 14 percent increase in sales from fiscal 2004 through 2005, with corresponding increases in profit margins.

Figure 1:

Hitachi will use software to increase its sales advantage, Takahashi says. In fiscal 2003, SAN/NAS solutions from Hitachi were typically comprised of 76 percent hardware, 10 percent software, and 14 percent services. By 2005, the company hopes to change that mix to 60 percent hardware, 20 percent software, and 20 percent services.— Mary Jander, Site Editor, Byte and Switch